Pattie Lovett-Reid's tips to avoid wealth destruction
Wealth destruction can happen in a heartbeat.
Many have worked hard to create their wealth and owe it to themselves not to blow it – yet so many do. Here are three ways to help you protect what you’ve earned.
1. Understand that your net worth is only a starting point. Writing down what you owe and what you own can provide greater clarity around concentration risk and the need to diversify or spread that risk around. Too much exposure in one company, sector, country, or even currency, needs to be addressed. Calculating your net worth is great the first time you do it but the real benefit occurs with consistency to track movements, highlight gains and remind yourself of what should have corrected the last time around but wasn’t. Markets can correct but you have no one to blame but yourself if your holdings are too concentrated.
2. You may have achieved a level of wealth; however, that doesn’t mean you should ignore the difference between a need and a want. Regardless of your financial status “needs” are things you required in order to survive such as food, shelter, healthcare, transportation, and, to some extent, clothing.
A “want” may be the amount you spend to satisfy that need. Some examples include catered meals, a tony residence, flashy car, and designer duds. Unless you are flush with cash, you should take the time to explore and understand the difference here. You shouldn’t blow the bank on everything or you’ll really run the risk of outliving your money.
3. Finally, a big factor derailing wealth creation for many is “ lifestyle inflation.” While you are working, there is a tendency to spend more as you make more. Even though you can make your payments on time, spending everything you have coming in ruins any chance of building or maintaining wealth. Combat this by paying yourself first and tucking some money away in an emergency fund in the event the job that was fuelling this great lifestyle comes to an end. It happens to great people all the time. Protect yourself by spending less than you earn – always.
Wealth advisor Gareth Watson adds it's important to keep our emotions in check when it comes to wealth preservation.
"That's what ruins it the most, is when you let emotions get involved into the process," the director at Richardson GMP said in a television interview.
There are many variables in life you can’t control but protecting your wealth isn’t one of them.